The first price auction generates higher avg rev than

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-The first-price auction generates higher avg rev than the Dutch auction -The difference is again around 5-10% -explanation: the first-price auctions rules may emphasize competition and price, while the dutch auction rules put more focus on waiting and earnings (diff. b/t reservation value and price) - Anchoring matters for the Dutch auction; if it starts from a higher level, it can make bidders more willing to bid earlier Other rules All-pay: the highest bid wins, but all bids must be paid Pay-to-bid: (bidding fee) auctions: each bid costs a small fee (like 10 cents). Such auctions can be won at prices much below the reservation value Nash Equilibria: can be found but become more complex overbidding can be strong, esp. For inexperienced bidders -overpayments are much more common -online auction businesses use such exploitative rules Bidding fee auctions Bidding fee auctions: each bid increment is small (like 1 cent) hence the name penny auction -to incr the bid by the increment, the player must pay a fee of 10cents+ -time limit; the player who made the last bid wins, winning price is often below value of prize, but bidding fees are substantial -hard to stop bidding bc bidding fees are sunk costs , hence people overpay -theoretical prediction: in any NE, risk neutral or risk averse agents should never end up paying more than $100 on average for $100 bill, bc each bidder is free to make NO bids at all -people overpay bc equilibrium is hard to find and depends on distributions of values Even if you know the equilibrium, you can still lose money if others do not play the equil. The sunk-cost fallacy: people find it hard to quit after paying fees Outright cheating by the online auction sites: shill bidding can increase the revenue for the seller Pareto Efficiency PE in auctions w/private values means that the winner is the bidder w/highest private value Vi -English auction is the closest to Pareto efficiency: more than 90% of auctions are won by agents w/highest private value -other auctions (second-price, first-price, Dutch) are less efficient: about 80% of auctions are won by bidders with the highest values -other formats like all-pay and pay-to-bid auctions may be even worse Revenue Equivalence principle Under the following assumptions: Population is fixed Equilibrium is Pareto efficient (highest value wins) Bidders w/zero values pay zero All auctions should produce same average revenue
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- Revenue equivalence principle asserts that the revenues will be the same if averaged across a large number of such auctions The revenue equivalence principle does not hold in experiments. The revenues can be ranked approximately as follows: Exotic auctions (All-pay, pay-to-bid) >First price > Dutch <> Second-Price > English Standard models w/private values The NE outcomes in the first-price and Dutch auctions should be the same The dominant strategy equilibria outcomes in the second-price and English auctions should be the same if the values are private
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